This Week’s Economic Update, August 28, 2023

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The last month of the regular baseball season is upon us.  Remember when the Tampa Bay Rays were so far ahead in the AL East that the media had already crowned them the champs? They may still make the playoffs, but only as a wild card team.  The AL West continues to be the most competitive race in baseball.  The Mariners surge in the past month has been as surprising as the Rangers collapse.  In the minor league AL Central the Twins are holding the lead spot only because the Guardians are doing their best to avoid first place.  Sadly, the Tigers at ten games under 500 still have a shot.  The National League?  Outside of the wild card spots, the races appear set.

After peaking in January of this year, existing home sales have fallen monthly to a point approaching the record lows of 2022.  This is not a factor of higher interest rates or high prices.  It is strictly a matter of supply.  Homeowners are holding tight unless forced to move due to occupation or health requirements.  Potential sellers look at the replacement cost of the replacement dwelling they are considering and say why bother.  Secondly, most have an interest rate at or around 2-3%.  Why swap that out for one over 6 or 7%?  This market shortage is not likely to change anytime soon.

Shipping is under stress from a number of aspects.  Container ships are stranded in Asian ports, empty, as European demand for products is at all time lows.  Owners of the ships are unwilling to dead head to other world ports due to the losses they will experience relocating the boats.  While the dollar continues to be strong, US exports are flagging.  That means fewer full runs from the US to Asia or Europe once a ship is unloaded at a US port.  Supply chains have righted themselves domestically here in America which is leaving many truckers sidelined.  A record number of semi rig repossessions is occurring. Many of the owner operators are falling behind on loans as they struggle to find a load that will produce an above break even point. 

The durable goods orders for July do bring some concern.  Overall, the orders were down 5.2% from June.  When you pulled out transportation, the orders were up .5% indicating the consumer is still buying, but not on autos.  The aerospace industry is also flagging with orders down for Boeing.  The recent news that the 737 Max has more problems, delaying new shipments is not going to help this.

The decline in oil rigs is continuing, even with oil at $80.  The US is now down to 632 in total rigs.  Crude oil supplies dropped another 6 million barrels. Over the past month we are now down 23 million barrels in crude supply.  This level of drop has not occurred in more than 25 years.  Post refinery supplies continue to grow.  This is occurring in spite of refinery shutdowns for maintenance and declining crude supplies.  Clearly, demand for gas and diesel products are soft, not just in America, but worldwide.  In the short term this should keep prices at the pump rather stable, however, in the long run we have to expect energy prices to rise.

The authorization by UAW workers to strike this past week will not help the durable goods orders or the shipping issues noted in this economic update.  Vehicle inventories are sufficient based on the low demand so any strike will not have much of an impact on availability.  This real issue is going to be the ripple effect to all the suppliers of parts for vehicles that will not be made.  The question might be, would these suppliers be facing the same outcome, layoffs and shut downs, whether the strikes occur or not.  As manufacturing is in a contraction zone already, the ills of the auto industry, over supply and possible strike, nothing on the horizon suggests much if any improvement.

I will be taking a break for the Labor Day weekend. My next update will be September 11, 2023



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